World Markets: The Worst Is Yet to Come

These are hard times for global markets, especially for all stock markets in the world that spent the day in the bright red. The financial hurricane was announced last week and as a result world stock exchange indexes lost a significant percentage of their value.

krah berzeTraders hope that there technical recovery will occur this week, but it might all remain a hope. The downward movement is too comprehensive and too widespread and that is the reason why traders around the world return to the markets by saying that the worst of the storm is behind them.

The public is kept in the dark with speech at once reassuring and tight linking stock market movements to complex interactions between different economies and complicated and remote factors. The stock market remains a vaguely mysterious realm is well suited to many people. Yet it’s not very complicated.

Over the last several years, the biggest central banks in the world, including European Central Bank, Federal Reserve, Swiss National Bank and the Bank of Japan have data for word address the crisis in which their economies are deliberated since 2008 and the battering that shook the financial world, which later continued with the subprime bubble, Lehman Brothers crisis of public debt and so on. It is not easy to give a precise date for the origin of this deliberate policy, but to the point where we are, the importance of it rises.

Correspondingly, it would take too long to make an inventory of all the crimes and all the lies committed by central bankers incontrollable in the handling of currencies which they are responsible. However, for simplicity, whatever the excuses displayed by each central bank, all manipulations were more or less the same effect, which means that interest rates reduced to zero or even negative as well as an explosion in the quantity of money in the balance sheet.

This means that the money created by central banks profusion flooded some economic circuits, but not necessarily those that were announced and completed companionships in the world where a financial bubble inflated.

Whether the reason was the need of authorities to create the illusion of good economic health of societies or not, it is difficult to decide undoubtedly between deceitfulness and incompetence, but the fact is that for years, more and more obvious, the prices of corporate shares are totally uncorrelated economic activity actual or even projected, which, of course is not a coincidence.

The fact is that the illusions do not last forever since the financial bubbles are invariably doomed to burst.

Generally, over the past decades many financial institutions became more aware that things are going completely wrong since the economic business goals are not achieved, macroeconomic conditions weaken, while, on the other side, the courses take good stock indexes continue to rise constantly. Of course that it could not happen in normal conditions and without hidden activities that intrude markets, but once we realized that central banks directly buy shares with the money they print, such as Fed in the hugest amounts, everything became clearer.

Yesterday’s „modification” remains minor, while the worst is yet to come. Many traders wonder why the crisis exploded on Monday in August, taking the hypothesis that it really broke yesterday that we cannot verify that the coming days. The fact is that that it was evident for a while, while it has just became more visible yesterday.

As a result, there are two new issues that changed the perception of the world economy. The first relates to the major raw materials extraction companies reported disappointing figures, since China is the world’s factory and its plants use raw materials.

The second is linked to international trade. The main problem with the programs “progressive” central banks is that you can print money and simulate financial health by manipulating the stock market, but you cannot simulate consumption of raw materials or transport existent goods. Reality resumed with losses on the financial markets. The extent of the decline and its global nature suggests that central banks interventions are increasingly visible and that this is not the end.

Piketimanija

Kada se početkom jeseni prošle godine francuskoj publici predstavila knjiga „Za poresku revoluciju“ trojice autora iz te zemlje, postalo je uočljivo koliko nekada u pisanu riječ pretočena želja da se nešto promijeni bez objašnjenja načina na koji je to moguće izvesti postaje zanimljiva javnosti.

pikettyUkoliko se imalo udubite u suštinu i pokušate potražiti svrhu takvih štiva vrlo brzo uviđate da je poenta njihovog objavljivanja isključiva želja autora da zaradi prodajući ideju koju je nemoguće realizovati zbog njene nelogičnosti.

Upravo sama nemogućnost realizovanja može takvu ideju učiniti naizgled uzvišenom, a intelektualne sposobnosti autora natprosječnim, te tako rezultirati da se literatura iz finansija pretvori u bestseler.

Jedan od trojice autora pomenute knjige, Toma Piketi baš takvim kanalima plasira sopstvene teorije za koje se, kada se malo bolje sagledaju činjenice, zaključi da se sasvim opravdano nijesu mogle naći u udžbenicima.

Popularna literatura o ekonomiji, finansijama i biznisu doprinosi promjenama u oblasti na koju cilja jednako koliko i denbraunovske teorije zavjere utiču na promjenu svjetskog poretka.

Sam Piketi, inače profesor pariškog ekonomskog fakulteta za nekoliko mjeseci prodao je više od pola miliona primjeraka knjige „Kapital u XXI vijeku“, po cijeni od dvadesetak dolara, dok na američkom kontinentu, gdje se izuzetno rijetko popularišu evropski ekonomisti, u medijima ima tretman zvijezde.

Fokus u ovom djelu je na evoluciji raspodjele dohotka u populaciji kroz vrijeme. Piketi primjećuje da je u svijetu došlo do ogromnog rasta nejednakosti između bogatih i siromašnih i da je ona prijetnja kako srednjoj klasi, tako i socijalnom miru.

Jasno je da se ne mora biti univerzitetski profesor da bi se donio ovakav zaključak, međutim, ubaciti ga među korice knjige koju potpisuje neko sa akademskom titulom nije ništa drugo nego podilaženje laičkoj čitalačkoj publici koja za to izdvaja novac, na način da „i neko upućen ima razumijevanja za haos koji je nastao“.

Ukoliko uviđate sličnost Piketijevih stavova sa objašnjenjima američkog ekonomiste Pola Krugmana koji je za ekonomsku krizu okrivio velike banke, što nije sporno, ali takođe ni nešto što je jedini uočio (ali što je među rijetkima veoma dobro unovčio), značiće vam i podatak da se dvojica autora međusobno uvažavaju i ne propuštaju priliku da to i pokažu.

Tako je Krugman za „Kapital u XXI vijeku“ rekao da je riječ o najvažnijoj ekonomskoj literaturi ove godine. Pronalaženje istomišljenika i promovisanje zajedničkih stavova potpuno je prirodno i opravdano, ali samo do granice kada praksa ne počne da opovrgava njihove teorije.

Piketijeva ideja o uvođenju globalnog poreza na kapital može impresionirati samo onoga ko ne poznaje nijednu komponentu uključenu u proces uvođenja poreza i ko nema svijest o tome da bi za takav instrument bio neophodan godišnji globalni obračun bogatstva.

Takvo nešto ne samo da nije moguće izračunati, nego, čak i kada bi se do određene brojke došlo, ne ostavlja prostor za prognoziranje koliko prihoda to bogatstvo može donijeti u budućnosti.

Piketi rast nejednakosti objašnjava i vlasničkim udjelom onih „jedan odsto“ bogatih koji se odnosi na akcijski kapital i opcije, pri čemu su njihove fiksne zarade relativno niske, naročito u poređenju sa onima koje su lideri kompanija imali prije nekoliko decenija.

Ideju da se indirektno okrivi kompenzacija zarade za vlasnički udio u kompanijama, te da se takav sistem smatra uzrokom nejednakosti mogu prihvatiti samo potpuni laici koji ne znaju da prihodi od hartija od vrijednosti zavise od tržišne preformanse kompanija koja je veoma promjenjiva. Kada je riječ o porezu, iako po povlašćenoj stopi, dobici se mogu oporezovati, logično, tek nakon što budu ostvareni.

Piketi je u potpunosti zanemario mogućnost posjedovanja hartija od vrijednosti koje ni na duži rok ne donose nikakvu zaradu, ali je ideju u oporezivanju pretočio u knjigu koja mu je u vrlo kratkom vremenu donijela ogromnu zaradu. A sve dok se protiv nepravde budu borili oni koji pričajući o njoj zarađuju, sistem može postajati samo suroviji po njene žrtve.

Rethinking Grexit Shows that the Euro is Irreversible

The main question posed these days that is related to the situation in the EU is what the Grexit scenario would cause to the rest of the users of the euro. Grexit is a slang term introduced in February this year by the Citigroup’s analysts and refers to the scenario of Greece’s leaving the Eurozone and readopting drachma. The most essential issue related to this possible turn of events is how costly would it be not only for Greece, but for the whole EU. The situation showing that such decision would bring negative consequences could be seen through the fact that by leaving the euro that country would be open to the global economy during a recession’s devastating consequences.

grcki euroBy giving up the single currency Greece could be followed by the other economies of southern Europe. According to the current studies, that state of affairs will create a hole in global economic growth amounted to 17 trillion euro that would cause a wave of global recession, shifting the economic conditions even in the United States and China. Another question that requires a response at the moment is: what could happen if Greece would have bankrupt and creditor countries would discontinue giving support to other Eurozone members? In the worst case scenario, according to the latest study made by Prognos AG the European Central Bank would be a sort of insolvent, so that the output of the single currency of Greece, Portugal, Spain and Italy would cause downturn, generating a decline in gross domestic product of about 17.2 trillion euro in at least 42 developed countries in a rapid tour that will not be ended before 2020. According to the estimations presented by the CNBC, the turn down will be the greatest in France, even 2.9 trillion euro, then in the U.S. 2.8, in China 1.9 and Germany 1.7 trillion euro. They reveal that many analysts have speculated on when not if Greece would leave the single currency, but German Chancellor Angela Merkel, the president of the ECB Mario Draghi and the president of Eurogroup Jean-Claude Juncker have constantly pledged their hold up for the country over the recent months.

The Prognos’ study shows that France would be particularly hard hit by the Italian sovereign default and exit from the euro on account of the extensive loans that French banks have placed in Italy. According to the most recent study by the Prognos AG (PDF file available here) of the analysts, in addition to a range of issues and economic consequences, such as the recession, the downfall of the euro threatens also the political stability in Greece as well. Despite all of the data presented in studies, the damage that would cause Grexit still cannot be precisely predicted, since it is creating a spiral of problems for the rest of the world.

On the other hand, there should be considered the cuts that will be made that will have an impact on lowering of the gross domestic product, but in terms of fiscal measures that would open a decade of overstated restrictions. That shows why once a country takes the euro and, unlike the Denmark, uses it for a certain period of time it cannot go back.

The current data are showing that the global economy is going through a long period of restrictions and taxation so it represents a combination of monetary and fiscal policies, while EU may be supposed to be in a benefited position. However, the fact is that there are breakings inside the system that will make avoiding the risk even more difficult. According to the current data and projections, some of the largest and most advanced economies in the world, first of all the United States, top EU countries, United Kingdom and Japan still swing among the resolutions on fiscal policies that might have an impact on a decrease in GDP by approximately even more than one percentage point per year, and it is estimated that such trend could last between five and eight years, which prolongs the uncertainty and reduces the chance of recovery to come even for a decade.

It is important to highlight that the euro is the final step in the integration process, but the fact is that member countries are more striving into it than they are actually meeting the other criteria for synchronization with other members at other levels. In other words, the purpose of the EU was not to create only a space with a single currency, but the single market with harmonized regulations, where such a step is preceding. Unfortunately, this important step was omitted and it resulted with a desire of some countries, not only Greece, but also Spain and Portugal, to abandon the single currency.

If the analyses continue to show that there is lack of benefits of the output of Greece from the Eurozone in comparison with the number of side effects, it would be clear that Grexit should not be allowed. In that case the disintegration of the euro would mean the key source of political and monetary destabilization of the EU that would continue to spread globally. Unquestionably, this gives the good lesson to the other eight members that are not in the Eurozone should have to think twice before adopting the single currency.

There is no doubt that it is better not to go into the game with the euro before determining that the Maastricht criteria could be fulfilled in the long run, otherwise it will create an uncertain situation which any national economy would not be able to escape, which means that the return to monetary sovereignty will not be possible under any circumstances.

Could the Banking Union Terminate the Crisis?

Considering the current situation in the European system of central banks, there are no doubts that the year 2013 will be very dynamic. Since over the past several years that area is overloaded with problems there could be questioned whether the banks will tend to form any sort of cooperative union or they will slide into further disintegration. What should first be observed are the steps taken to solve financially critical issues.

perperzona unija banakaDuring the summer there were several developments in the field of crisis management by the political class of the Eurozone, but from the end of September, it seems that all hope of recovery for the euro has been a waste of time. The fact is that the crisis of the euro as a currency is in progress. Among the events meant for the rescue of the single currency are the direct recapitalization of banks and the activation of the funds of the European Stability Mechanism to save the most problematical countries of the Eurozone. It all goes on under the big impact of the approval by the German Constitutional Court of the fund ESM and the situation where the option that was the most pro-euro won the elections in the Netherlands. Another fact to observe is the launch of the program of the Outright Monetary Transaction.

In this case Germany insists that the recapitalization of banks by the fond of the ESM which is to be guaranteed by a supervisory body. As a result it struggles a lot, whether it is more suitable that the fund contributes to the recapitalization of banks passing through the government or whether it is more appropriate to direct recapitalization. Regardless how confusing the situation is at the moment, by the end of the next year the things will be placed in certain directions, so that the picture will be clearer.

Considering the supervision of the banking system, there cold be noted that Germany and its partners would like the supervisory role of the European Central Bank that would be restricted to a limited number of institutions, giving more importance to international banks. Besides, according to this standpoint, it would be more appropriate that the fund ESM departed only once the supervisory body was activated, and then further delayed. As a final point, the finance ministers of Germany, Finland and the Netherlands argue that there should be no form of mutual debts. What has been pointed out is that the biggest problem is the austerity. It was confirmed with the fact that the potential of the OMT remained unexpressed until the governments do not agree to all the conditions that this implies. Another issue is that the conditions are unknown, so the whole situation increases the need for the austerity, but it is still unknown to what extent. In Greece the situation is rather fragile, since so much so that the International Monetary Fund has intervened in the matter, which complicates the situation even more because too much austerity is bad for economic recovery.

The question is what benefits the bank union would give. To save the life of the single currency, the most reasonable solution would then be to create the banking union quickly, or, at least, make real progress in that direction. In this way, the European Central Bank could become supervisor of the entire banking system of the euro, a single resolution system for insolvent banks, a single system of guarantee funds and deposits. The banking union is a necessary step to restore the monetary transmission mechanism of the Eurozone which was damaged by the bad relations between governments, banks, national banks and debt.

In addition, to save the euro there should be created conditions for the resumption of growth and restructuring of the debt of insolvent governments: Greece, Ireland, Portugal and Cyprus, but possibly also Spain, Italy and Slovenia. The labors of austerity in the peripheral economies and those to save the nations at the core of the economic system of the Eurozone imply that the ECB’s control of the euro is the only one that can fill the gap that exists between public debt and the national banking system. However, any attempt to change the situation actually places the ECB system in the role of being able to provide the right help on a large scale that would result in the release of the “strong” by the single currency, which instead should reject the role of the ECB as its all-time rescuer.